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That it Will Hurt, all Agree, but Opinions Vary as to How Much

The government has been fine-tuning its economic plan to weather the crisis, and further steps are yet to be seen. The novel coronavirus pandemic will take its toll on the Hungarian economy, but opinions – even among government members – vary about the extent of the unavoidable setback.

Prime Minister Viktor Orbán (left) during an interview with monk Milán Lukovits, the program director of Mária Rádió, on April 20. The PM told listeners Hungary would would reach “full self-defense capability” on May 3, after which time a gradual return to normal routines would be possible. Photo by MTI / Prime Ministerʼs Press Office / Zoltán Fischer

Although the Prime Minister Viktor Orbán’s response to the pandemic — to rule by decree indefinitely — has been criticized in Europe, the government’s economic rescue package and the current state of the Hungarian economy has been recognized by several international institutions.

The International Monetary Fund (IMF), for one, said in its revised World Economic Outlook that the Hungarian economy would contract by 3.1% in 2020, but put it as the second least-affected economies in the European Union.

The Fund projects that the Hungarian economy will rebound in 2021 and will expand by 4.2%. In its last previous forecast, released in the fall, the IMF had put Hungary’s GDP growth at 3.3% for this year and 2.9% for the next. The IMF’s latest forecast now sees Hungary registering the second smallest economic drop in the European Union this year after Malta, whose economy is seen contracting by 2.8%. Outside the bloc, only Serbia is seen as doing better, with a contraction of 3%.

In order to fight the economic impacts of the virus more effectively, the government said it would expand its government-subsidized scheme for shorter working hours, presented on April 6. The government’s stimulus package will move some 18-20% of GDP, the equivalent of around HUF 9.5 trillion, to jump-start the economy once the pandemic is under control.

The package includes tax breaks, wage contributions and lending subsidy programs, as well as a kurzarbeit scheme, based on a German model used to help struggling businesses furlough workers rather from than laying them off, in exchange for job guarantees.

Fine Tuning

The measures have been criticized by some business leaders, who argue they have been too narrow in scope. “We announced the shortened labor regulation last week.[...] Now we will specify certain aspects so it is easier to take advantage of,” Minister for Innovation and Technology László Palkovics told Hír TV television in an interview.

Palkovics said the government would extend to two years the time period during which businesses can require employees to put in the hours later in exchange for wages paid while work is suspended.

While analysts close to the government voice opinions that Orbán’s economic package is well-founded and carries no risk in the long run, others warn about possible side-effects.

Conservative economist and journalist Csaba Szajlai wrote in an editorial article in pro-government national daily Magyar Nemzet that the “Orbán package” will help the Hungarian economy recover without creating long-term systemic risks.

He recalled the results of the past 10 years, saying that, as a result of low deficits and shrinking public debt over the past decade, the Hungarian economy is in a much healthier state than it was at the time of the 2008 global financial crisis, and therefore the government has more elbow room to boost the economy through public spending.

Others, while acknowledging the package’s positive effects, are more cautious. Associate professor at the department of economics at the National University of Public Service Krisztián Kertész told business portal portfolio.hu that, while he finds the government’s proactive policies reasonable and well-balanced, loose monetary policy and increased welfare spending may prove counterproductive.

He also fears that the cheap money may not go to sectors that are most harmed by the coronavirus emergency, but instead will boost less risky businesses.

All in all, he welcomed the government intervention to shore up the exchange rate of the forint, along with the recently-announced loan repayment moratorium and tax cuts as the best tools to keep the economy afloat.

Opposition View

Opposition newspaper Népszava quotes István Csillag, who served as Free Democrat (SzDSz) Minister of Economy and Transport in the socialist-liberal coalition government of Péter Medgyessy from 2002-2004, as saying that the subsidies announced by the government to mitigate the impact of the coronavirus are too little too late to help Hungarian businesses avoid insolvency. Instead, he called for increased welfare benefits to help Hungarians in need.

Opinions on the government’s side also vary on how much the current lockdown and the impacts of the pandemic will hurt Hungary’s economy.

Minister of Finance Mihály Varga expects a 3% recession this year. Orbán, in its latest regular radio interview, said he would consider it a feat to keep the growth rate around zero, but also said that the recession would be smaller than most observers have forecast, while the rebound could be slower than the most optimistic projections.

National Bank of Hungary’s governor György Matolcsy, on the other hand, was typically optimistic, saying he still envisions a “V-shaped” crisis, and he expects the economy to keep growing in 2020. Furthermore, he wrote in an opinion piece on növekedés.hu that Hungary could replicate Singapore’s success model after the recent crisis, noting that Hungary should follow a European, and specifically Central European version of that model.

The national news agency cited Orbán as saying in an interview with Catholic Mária Rádió that, by May 3, Hungary would be prepared to handle any rise in infections and that from that point onwards it could afford to seek ways to get back to normal, step by step. According to the modelling, the epidemic will peak on that day.

Numbers to Watch in the Coming Weeks

Figures to be published in the coming weeks will finally begin to show signs of the recent pandemic. First, the Central Statistical Office (KSH) will publish unemployment figures for the January-March period on April 28. On May 6, March retail trade data will be released, followed by the first estimate of the industrial production in March on May 7 and the April consumer price index on May 8.